<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8606
Bell Atlantic Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2259884
(State of incorporation) (I.R.S. Employer
Identification No.)
1717 Arch Street 19103
Philadelphia, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (215) 963-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At October 31, 1995, 437,304,830 shares of the registrant's Common Stock were
outstanding, after deducting 62,739 shares held in treasury.
================================================================================
<PAGE>
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part I. Financial Information
1. Financial Statements
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 1995 and 1994.. 2-3
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994......................... 4-5
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1995 and 1994............ 6
Notes to Condensed Consolidated Financial Statements.............. 7-9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 10-23
Part II. Other Information
1. Legal Proceedings................................................... 24
6. Exhibits and Reports on Form 8-K.................................... 24
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING REVENUES..................................................... $ 3,261.1 $ 3,455.3
--------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes........................... 1,034.6 1,236.2
Depreciation and amortization.......................................... 642.5 674.7
Other.................................................................. 864.6 953.4
--------- ---------
2,541.7 2,864.3
--------- ---------
OPERATING INCOME....................................................... 719.4 591.0
Equity in Income of Affiliates......................................... 74.5 23.0
Other Income (Expense), Net............................................ 317.1 (20.5)
Interest Expense....................................................... 133.9 153.6
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM................................................... 977.1 439.9
Provision for Income Taxes............................................. 372.3 164.2
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM....................................... 604.8 275.7
EXTRAORDINARY ITEM
Discontinuation of Regulatory Accounting Principles, Net of Tax........ -- (2,150.0)
--------- ---------
NET INCOME (LOSS) ..................................................... $ 604.8 $(1,874.3)
========= =========
PER COMMON SHARE
- ----------------
INCOME BEFORE EXTRAORDINARY ITEM....................................... $ 1.38 $ .63
EXTRAORDINARY ITEM..................................................... -- (4.92)
--------- ---------
NET INCOME (LOSS)...................................................... $ 1.38 $ (4.29)
========= =========
Cash Dividends Declared................................................ $ .70 $ .69
========= =========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions).......................... 438.5 437.3
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1995 1994
---------- -----------
<S> <C> <C>
OPERATING REVENUES.................................... $10,275.3 $10,304.9
--------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes.......... 3,129.5 3,312.9
Depreciation and amortization......................... 1,991.9 1,972.4
Other................................................. 2,760.0 2,882.3
--------- ---------
7,881.4 8,167.6
--------- ---------
OPERATING INCOME...................................... 2,393.9 2,137.3
Equity in Income of Affiliates........................ 90.3 62.0
Other Income, Net..................................... 324.0 7.1
Interest Expense...................................... 420.5 437.4
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEMS.................................. 2,387.7 1,769.0
Provision for Income Taxes............................ 921.3 682.0
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS..................... 1,466.4 1,087.0
--------- ---------
EXTRAORDINARY ITEMS
Discontinuation of Regulatory Accounting Principles,
Net of Tax........................................... -- (2,150.0)
Early Extinguishment of Debt, Net of Tax.............. -- (6.7)
--------- ---------
-- (2,156.7)
--------- ---------
NET INCOME (LOSS)..................................... $ 1,466.4 $(1,069.7)
========= =========
PER COMMON SHARE
- ----------------
INCOME BEFORE EXTRAORDINARY ITEMS..................... $ 3.35 $ 2.49
EXTRAORDINARY ITEMS................................... -- (4.94)
--------- ---------
NET INCOME (LOSS)..................................... $ 3.35 $ (2.45)
========= =========
Cash Dividends Declared............................... $ 2.10 $ 2.07
========= =========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions).......... 437.9 437.3
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents...................... $ 97.7 $ 142.9
Short-term investments......................... 41.9 --
Accounts receivable, net of allowances of
$170.4 and $188.9............................. 2,313.8 2,328.1
Inventories.................................... 282.2 274.6
Prepaid expenses............................... 691.6 545.5
Other.......................................... 456.5 492.2
---------- ----------
3,883.7 3,783.3
---------- ----------
PLANT, PROPERTY AND EQUIPMENT.................. 33,509.4 33,745.8
Less accumulated depreciation.................. 17,439.2 16,807.7
---------- ----------
16,070.2 16,938.1
---------- ----------
INVESTMENTS IN AFFILIATES...................... 3,015.4 1,576.8
OTHER ASSETS................................... 1,576.7 1,973.6
---------- ----------
TOTAL ASSETS................................... $ 24,546.0 $ 24,271.8
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNERS' INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year..................... $ 2,170.3 $ 2,087.6
Accounts payable and accrued liabilities.......... 2,253.7 2,608.9
Other............................................. 859.1 880.2
--------- ---------
5,283.1 5,576.7
--------- ---------
LONG TERM DEBT.................................... 6,647.5 6,805.7
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS...................... 3,951.6 3,773.8
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes............................. 1,407.3 1,305.7
Unamortized investment tax credits................ 154.8 176.7
Other............................................. 388.0 466.9
--------- ---------
1,950.1 1,949.3
--------- ---------
PREFERRED STOCK OF SUBSIDIARY..................... 85.0 85.0
--------- ---------
SHAREOWNERS' INVESTMENT
Preferred and Preference stock ($1 par value;
none issued)..................................... -- --
Common stock ($1 par value; 436,988,225 shares
and 436,405,646 shares issued)................... 437.0 436.4
Common stock issuable (92,899 shares)............. .1 .1
Contributed capital............................... 5,462.9 5,428.4
Reinvested earnings............................... 1,697.6 1,144.4
Foreign currency translation adjustment........... (430.7) (330.8)
--------- ---------
7,166.9 6,678.5
Less common stock in treasury, at cost............ 3.1 11.0
Less deferred compensation-employee stock
ownership plans.................................. 535.1 586.2
--------- ---------
6,628.7 6,081.3
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT..... $24,546.0 $24,271.8
========= =========
</TABLE>
See Notes To Condensed Consolidated Financial Statements.
5
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $1,466.4 $(1,069.7)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 1,991.9 1,972.4
Extraordinary items, net of tax..................... -- 2,156.7
Gain on sale of conflicted cellular properties, net
of tax............................................. (203.0) --
Other items, net.................................... 50.1 (48.6)
Changes in certain assets and liabilities, net of
effects from acquisition/disposition of businesses. (389.2) (468.5)
--------- ---------
Net cash provided by operating activities............. 2,916.2 2,542.3
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments.................. (41.9) 8.5
Additions to plant, property and equipment............ (2,129.3) (1,683.0)
Proceeds from sale of plant, property and equipment... 2.3 26.1
Investment in finance lease and notes receivable...... -- (735.5)
Proceeds from finance lease and notes receivable...... 31.4 717.0
Investment in notes receivable and preferred stock.... (51.1) --
Proceeds from notes receivable........................ 266.7 --
Acquisition of businesses, less cash acquired......... (41.4) (34.6)
Proceeds from Telecom Corporation of New Zealand
Limited capital reduction plan....................... -- 67.4
Investment in joint ventures.......................... (352.2) (554.6)
Proceeds from disposition of businesses............... 362.5 1,273.2
Other, net............................................ .5 (50.6)
--------- ---------
Net cash used in investing activities................. (1,952.5) (966.1)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings.............................. 106.6 249.5
Principal repayments of borrowings and capital lease
obligations.......................................... (340.0) (547.7)
Early extinguishment of debt.......................... -- (350.0)
Net change in short-term borrowings with original
maturities of three months or less................... 147.3 (3.0)
Dividends paid........................................ (912.0) (894.1)
Proceeds from sale of common stock.................... 42.2 6.7
Purchase of common stock for treasury................. (11.2) (8.7)
Net change in outstanding checks drawn on controlled
disbursement accounts................................ (41.8) (33.9)
Proceeds from sale of preferred stock by subsidiary... -- 85.0
--------- ---------
Net cash used in financing activities................. (1,008.9) (1,496.2)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (45.2) 80.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 142.9 146.1
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 97.7 $ 226.1
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic Corporation (Bell Atlantic or the Company) pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
December 31, 1994 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, these financial statements include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the results of operations, financial position and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Effective August 1, 1994, the Company discontinued accounting for the operations
of its telephone subsidiaries in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation."
2. Shareowners' Investment
-----------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------------------------------------------------------
Foreign
Common Currency Deferred
Common Stock Contributed Reinvested Translation Treasury Compensation
Stock Issuable Capital Earnings Adjustment Stock ESOPs
------ -------- ----------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.......... $ 436.4 $ .1 $ 5,428.4 $ 1,144.4 $ (330.8) $ 11.0 $ 586.2
Net income.......................... 1,466.4
Dividends declared on common stock.. (916.9)
Purchase of common stock for
treasury........................... 11.2
Common stock issued:
Employee plans..................... .6 33.0 (3.3) (2.1)
Shareowner plans................... -- 1.5 (11.6)
Acquisition agreements............. (5.4)
Foreign currency translation
adjustment, net.................... (99.9)
Reduction of ESOP obligations....... (51.1)
Tax benefit of dividends
paid to ESOPs...................... 7.0
-------- ----- --------- ---------- ---------- ------- --------
Balance, September 30, 1995......... $ 437.0 $ .1 $ 5,462.9 $ 1,697.6 $ (430.7) $ 3.1 $ 535.1
======== ===== ========= ========== ========== ======= ========
</TABLE>
During the nine months ended September 30, 1995, the Company distributed
approximately 574,000 shares of common stock for employee plans and
approximately 8,000 shares of common stock for shareowner plans. During the
same period, the Company also repurchased approximately 210,000 shares of its
common stock for treasury, and also distributed approximately 42,000 treasury
shares for employee plans, approximately 234,000 treasury shares for shareowner
plans, and approximately 91,000 treasury shares for the acquisition of a
business.
7
<PAGE>
3. Formation of Wireless Partnership
---------------------------------
Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) completed
the combination of substantially all of their domestic cellular and paging
businesses and the formation of a partnership, Bell Atlantic NYNEX Mobile, that
owns and operates such businesses. Bell Atlantic NYNEX Mobile operates as a
general partnership and is controlled equally by Bell Atlantic and NYNEX. Bell
Atlantic owns an approximate 63% equity interest and NYNEX owns an approximate
37% equity interest in Bell Atlantic NYNEX Mobile. The Company accounts for its
interest in the partnership under the equity method.
Coincident with, and as a condition to, the completion of the combination,
Bell Atlantic sold certain cellular properties in Massachusetts and Rhode
Island. The Company recorded a pretax gain of approximately $318 million
(subject to post-closing adjustments) on the sale of the cellular properties in
the third quarter of 1995.
Bell Atlantic contributed certain assets and liabilities of its domestic
cellular and paging operating subsidiaries in exchange for an equity interest in
Bell Atlantic NYNEX Mobile. No gain or loss was recognized on the contribution
of the assets and liabilities.
The following amounts (subject to post-closing adjustments) were contributed by
the Company to the partnership:
<TABLE>
<CAPTION>
(Dollars in Millions)
- ------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 212.2
Noncurrent assets 1,265.2
- ------------------------------------------------------------------------
Total Assets $ 1,477.4
- ------------------------------------------------------------------------
Current liabilities $ 270.3
Noncurrent liabilities 70.1
- ------------------------------------------------------------------------
Total Liabilities 340.4
- ------------------------------------------------------------------------
Net Assets Contributed $1,137.0
========================================================================
</TABLE>
Revenues and expenses of the Company's domestic cellular and paging businesses
reflected in the financial statements for periods prior to the formation of the
partnership are as follows:
<TABLE>
<CAPTION>
Six months Three months Nine months
ended June 30, ended September 30, ended September 30,
------------------ --------------------- ---------------------
(Dollars in Millions) 1995 1994 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $629.9 $272.5 $769.9
OPERATING EXPENSES 532.0 226.8 667.5
-------------------------------------------------------------
OPERATING INCOME 97.9 45.7 102.4
Equity in Income of
Unconsolidated Affiliates 22.6 7.0 27.4
Other Expense, net .1 4.6 13.1
Interest Expense 13.9 2.7 9.6
-------------------------------------------------------------
Income Before Income Taxes $106.5 $ 45.4 $107.1
=============================================================
</TABLE>
8
<PAGE>
4. Long-Term Debt - Bell Atlantic Financial Services, Inc.
-------------------------------------------------------
Debt securities of Bell Atlantic Financial Services, Inc. (FSI) in the
amount of $731.3 million at September 30, 1995 have the benefit of a Support
Agreement dated October 1, 1992 between Bell Atlantic and FSI, under which Bell
Atlantic has committed to make payments of interest, premium, if any, and
principal on the FSI debt in the event of FSI's failure to pay. The Support
Agreement provides that the holders of FSI debt shall not have recourse to the
stock or assets of Bell Atlantic's telephone subsidiaries. However, in addition
to dividends paid to Bell Atlantic by any of its consolidated subsidiaries,
assets of Bell Atlantic that are not subject to such exclusion are available as
recourse to holders of FSI debt. The carrying value of the available assets
reflected in the condensed consolidated financial statements of Bell Atlantic
was approximately $5 billion at September 30, 1995.
5. Subsequent Event - Sale of Business
-----------------------------------
In October 1995, the Company sold its domestic computer maintenance
subsidiary, Bell Atlantic Business Systems Services, Inc., and its interests in
certain European computer maintenance operations for approximately $250 million
in cash (subject to post-closing adjustments). The Company expects to record a
small gain as a result of this disposition. This disposition is not expected to
have a material impact on the Company's future net income.
6. Reclassifications
-----------------
Certain reclassifications of the prior year's data have been made to
conform to 1995 classifications.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
- -----------------------
Results of Operations
- -----------------------
Net income for the three and nine month periods ended September 30, 1995 was
$604.8 million or $1.38 per share and $1,466.4 million or $3.35 per share,
respectively, compared to a loss of $1,874.3 million or $4.29 per share and a
loss of $1,069.7 million or $2.45 per share for the same respective periods in
1994.
Results for the third quarter and year-to-date 1994 included a non-cash,
after-tax extraordinary charge of $2,150.0 million, or $4.92 per share, in
connection with the Company's decision to discontinue application of regulatory
accounting principles required by Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation." Year-
to-date 1994 also included an after-tax extraordinary charge of $6.7 million for
the early extinguishment of debt.
Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) completed
the combination of substantially all of their domestic cellular and paging
businesses and the formation of a partnership, Bell Atlantic NYNEX Mobile, that
owns and operates such businesses. Coincident with, and as a condition to, the
completion of the combination, Bell Atlantic sold certain cellular properties in
Massachusetts and Rhode Island. The Company recorded a pretax gain of
approximately $318 million (subject to post-closing adjustments) on the sale of
the cellular properties in the third quarter of 1995.
Coincident with the formation of the Bell Atlantic NYNEX Mobile partnership,
the Company discontinued consolidation of the domestic cellular and paging
operations contributed to the partnership. The Company's investment in the
partnership, subsequent to June 30, 1995, is accounted for under the equity
method. Under this method, the Company's proportionate share of the
partnership's pretax income is included in Equity in Income of Affiliates.
In accordance with generally accepted accounting principles, the Consolidated
Statements of Operations for the nine month periods ended September 30, 1995 and
1994 and the three month period ended September 30, 1994 continue to reflect the
results of Bell Atlantic's domestic cellular and paging businesses on a
consolidated basis for all periods prior to July 1, 1995.
Revenues and expenses of the Company's domestic cellular and paging businesses
reflected in the financial statements for periods prior to the formation of the
partnership are as follows:
<TABLE>
<CAPTION>
Six months Three months Nine months
ended June 30, ended September 30, ended September 30,
-------------------- ------------------------- -------------------------
(Dollars in Millions) 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $629.9 $272.5 $769.9
OPERATING EXPENSES 532.0 226.8 667.5
------------------------------------------------------------------------
OPERATING INCOME 97.9 45.7 102.4
Equity in Income of
Unconsolidated Affiliates 22.6 7.0 27.4
Other Expense, net .1 4.6 13.1
Interest Expense 13.9 2.7 9.6
------------------------------------------------------------------------
Income Before Income Taxes $106.5 $ 45.4 $107.1
========================================================================
</TABLE>
To facilitate the comparison of financial results for purposes of the
Management's Discussion and Analysis, the net revenues and expenses of the
Company's domestic cellular and paging operations prior to July 1, 1995 are
classified in the statements of operations below as a component of Equity in
Income of Affiliates.
10
<PAGE>
Management's Discussion and Analysis of results of operations is based on the
comparison of the following amounts:
CONSOLIDATED STATEMENTS OF OPERATIONS
with Domestic Cellular and Paging Results of Operations,
prior to July 1, 1995, presented as though accounted for
under the equity method
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------------
Three months Nine months
---------------- -----------------
For the Period Ended September 30 1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $3,261.1 $3,195.3 $9,673.4 $9,571.2
-----------------------------------------
OPERATING EXPENSES
Employee costs 1,034.6 1,199.2 3,040.3 3,206.5
Depreciation and amortization 642.5 640.0 1,913.3 1,872.9
Other 864.6 810.8 2,423.8 2,456.9
-----------------------------------------
2,541.7 2,650.0 7,377.4 7,536.3
-----------------------------------------
OPERATING INCOME 719.4 545.3 2,296.0 2,034.9
Equity in Income of Affiliates 74.5 61.4 174.2 141.7
Other Income (Expense), Net 317.1 (15.9) 324.1 20.2
Interest Expense 133.9 150.9 406.6 427.8
-----------------------------------------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEMS 977.1 439.9 2,387.7 1,769.0
Provision for Income Taxes 372.3 164.2 921.3 682.0
-----------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS 604.8 275.7 1,466.4 1,087.0
Extraordinary Items
Discontinuation of regulatory
accounting principles, net of tax --- (2,150.0) --- (2,150.0)
Early extinguishment of debt, net
of tax --- --- --- (6.7)
-----------------------------------------
NET INCOME (LOSS) $ 604.8 $(1,874.3) $1,466.4 $(1,069.7)
=========================================
</TABLE>
For the three month period ended September 30, 1994 and the nine month periods
ended September 30, 1995 and 1994 previously eliminated intercompany
transactions aggregating $12.5 million, $28.0 million and $36.2 million,
respectively, are added back to both operating revenues and operating expenses.
- --------------------
Operating Revenues
- --------------------
Amounts below exclude domestic cellular and paging revenues.
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------------
Three months Nine months
---------------- -----------------
For the Period Ended September 30 1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transport Services
Local service $1,118.6 $1,096.3 $3,317.6 $3,250.5
Network access 856.2 836.8 2,549.5 2,424.4
Toll service 355.9 376.5 1,082.2 1,189.6
Ancillary Services
Directory publishing 273.4 270.8 826.3 808.3
Other 142.3 123.1 419.0 337.2
Value-added Services 353.0 316.9 1,010.6 948.3
Other Services 161.7 174.9 468.2 612.9
-----------------------------------------
Total $3,261.1 $3,195.3 $9,673.4 $9,571.2
=========================================
</TABLE>
11
<PAGE>
- -----------------------------------------
Transport Services Operating Statistics
- -----------------------------------------
<TABLE>
<CAPTION>
Percentage
1995 1994 Increase (Decrease)
- --------------------------------------------------------------------------------
At September 30
- ---------------
<S> <C> <C> <C>
Access Lines in Service (In thousands)
Residence 12,535 12,260 2.2%
Business 6,846 6,492 5.5
Public 278 281 (1.1)
----------------
19,659 19,033 3.3
================
<CAPTION>
Three months Nine months Percentage Increase (Decrease)
------------------------ --------------------- ------------------------------
1995 1994 1995 1994 Third Quarter Year-to-Date
- -------------------------------------------------------------------------------------------------------------------------------
For the Period Ended September 30
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Access Minutes of Use (In millions)
Interstate 15,345 14,377 44,977 42,183 6.7% 6.6%
Intrastate 4,183 3,651 11,893 10,515 14.6 13.1
---------------------------------------------------------
19,528 18,028 56,870 52,698 8.3 7.9
=========================================================
Toll Messages (In millions)
Intrastate 818.7 830.6 2,444.8 2,534.8 (1.4)% (3.6)%
Interstate 42.2 42.8 125.8 132.0 (1.4) (4.7)
---------------------------------------------------------
860.9 873.4 2,570.6 2,666.8 (1.4) (3.6)
=========================================================
</TABLE>
Local Service Revenues
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $22.3 2.0%
- --------------------------------------------------------------------------------
Nine Months $67.1 2.1%
================================================================================
</TABLE>
Local service revenues are earned by the telephone subsidiaries from the
provision of local exchange, local private line and public telephone services.
Local service revenues increased in the three and nine month periods ended
September 30, 1995 due primarily to growth in network access lines, and
increased usage and data transport by business customers. Access lines in
service at September 30, 1995 increased 3.3% from September 30, 1994.
Network Access Revenues
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $19.4 2.3%
- --------------------------------------------------------------------------------
Nine Months $125.1 5.2%
================================================================================
</TABLE>
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long-distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid by
IXCs and end-users who have private networks. End-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased for both periods of 1995 due to higher
customer demand for access services as reflected by growth in access minutes of
use and in private networks, as well as growth in end-user charges attributable
to increasing access lines in service. Access minutes of use for the three and
nine month periods ended September 30, 1995 were higher than the corresponding
periods of 1994 by 8.3% and 7.9%, respectively. Revenues in 1995 were also
positively impacted by a temporary rate increase that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs.
12
<PAGE>
Revenue growth from volume increases for both periods of 1995 was partially
offset by the effect of price reductions. Under the Federal Communications
Commission's (FCC) Price Cap Plan, price reductions on interstate access
services were in effect from July 1, 1994 through July 31, 1995.
In March 1995, the FCC adopted an order approving an Interim Price Cap Plan
for interstate access charges, which replaces the prior Price Cap Plan. As
required by the FCC's order, the Company filed its Transmittal of Interstate
Rates, which resulted in price decreases totaling approximately $305 million on
an annual basis, effective August 1, 1995. These price decreases included the
scheduled expiration of a temporary rate increase of approximately $98 million
on an annualized basis that was in effect from March 17, 1995 through July 31,
1995 to recover prior years "exogenous" postemployment benefit costs.
Approximately 80% of the remaining $207 million reduction results from
compliance with the Interim Plan. The remaining 20% represents reductions that
the Company was required to make under the prior Price Cap Plan. It is expected
that these price decreases will be partially offset by volume increases. Also
as part of the filing, the Company selected a 5.3% Productivity Factor, which
eliminates the requirement to share a portion of interstate earnings related to
the August 1995 to June 1996 tariff period. See "Competitive and Regulatory
Environment - Federal Regulation" for a further discussion of FCC interstate
access revenue issues.
Toll Service Revenues
<TABLE>
<CAPTION>
Dollars in Millions (Decrease)
================================================================================
<S> <C> <C>
Third Quarter $(20.6) (5.5)%
- --------------------------------------------------------------------------------
Nine Months $(107.4) (9.0)%
================================================================================
</TABLE>
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company's
telephone subsidiaries, commonly referred to as "LATAs." Other toll services
include 800 services, Wide Area Telephone Service (WATS), and corridor services
(between Northern New Jersey and New York City and between Southern New Jersey
and Philadelphia.)
The decrease in toll service revenues was caused by a decline in toll message
volumes and price reductions on certain toll services. Toll message volumes for
the three and nine month periods ended September 30, 1995 decreased 1.4% and
3.6%, respectively, over the comparable periods last year. The decrease in toll
messages is due primarily to increased competition throughout the region for
intraLATA toll and WATS services. Extended local calling areas in Virginia also
contributed to the reduction in toll service revenues. See "Competitive and
Regulatory Environment - State Regulation" for a further discussion of toll
service revenue issues.
Directory Publishing Revenues
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $2.6 1.0%
- --------------------------------------------------------------------------------
Nine Months $18.0 2.2%
================================================================================
</TABLE>
Directory publishing revenues are earned primarily from local advertising and
marketing services provided to businesses in White and Yellow Pages directories
published throughout the region. Other directory publishing services include
database and foreign directory marketing.
Growth in directory publishing revenues in the three and nine month periods
ended September 30, 1995 was principally due to higher rates charged for these
services. Volume growth continues to be impacted by competition from other
directory companies, as well as other advertising media.
13
<PAGE>
Other Ancillary Services Revenues
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $19.2 15.6%
- --------------------------------------------------------------------------------
Nine Months $81.8 24.3%
================================================================================
</TABLE>
Other ancillary services include systems integration services, billing and
collection services provided to IXCs, facilities rental services, and video
services.
Other ancillary services revenues increased in both periods of 1995
principally due to an increase in the number of contracts for systems
integration services provided to business customers.
Value-added Services Revenues
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $36.1 11.4%
- --------------------------------------------------------------------------------
Nine Months $62.3 6.6%
================================================================================
</TABLE>
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher demand
by residence customers for certain value-added central office and voice
messaging services offered by the telephone subsidiaries increased value-added
services revenues in the third quarter and year-to-date 1995. These revenue
increases were partially offset by the elimination of Touch-Tone service charges
for Bell Atlantic - Virginia customers, effective January 1, 1995. The
elimination of Touch-Tone service charges in Bell Atlantic - Virginia is
expected to reduce value-added services revenues by approximately $25 million
annually.
Other Services Revenues
<TABLE>
<CAPTION>
Dollars in Millions (Decrease)
================================================================================
<S> <C> <C>
Third Quarter $(13.2) (7.5)%
- --------------------------------------------------------------------------------
Nine Months $(144.7) (23.6)%
================================================================================
</TABLE>
Other services include revenues from the Company's computer maintenance,
telecommunications consulting, real estate and leasing businesses.
The third quarter and year-to-date decreases in other services revenues were
due primarily to the sale of substantially all of the Company's lease financing
business and a liquefied petroleum gas distribution business during 1994. These
revenue decreases were partially offset by revenue growth from the Company's
third-party computer maintenance business, principally due to higher volumes
resulting from new contracts.
In October 1995, the Company sold its domestic computer maintenance
subsidiary, Bell Atlantic Business Systems Services, Inc. (see Note 5 to the
Condensed Consolidated Financial Statements). As a result of this disposition,
future periods will no longer include operating revenues from this business.
Operating revenues related to this business were approximately $375 million and
$345 million for the nine month periods ended September 30, 1995 and 1994,
respectively.
14
<PAGE>
- --------------------
Operating Expenses
- --------------------
Amounts below exclude domestic cellular and paging expenses.
<TABLE>
<CAPTION>
(Dollars in Millions)
--------------------------------------------------
Three months Nine months
----------------------- ---------------------
For the Period Ended September 30 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee costs, including benefits and
taxes $1,034.6 $1,199.2 $3,040.3 $3,206.5
Depreciation and amortization 642.5 640.0 1,913.3 1,872.9
Other operating expenses 864.6 810.8 2,423.8 2,456.9
---------------------------------------------
Total $2,541.7 $2,650.0 $7,377.4 $7,536.3
=============================================
</TABLE>
Employee Costs
<TABLE>
<CAPTION>
Dollars in Millions (Decrease)
================================================================================
<S> <C> <C>
Third Quarter $(164.6) (13.7)%
- --------------------------------------------------------------------------------
Nine Months $(166.2) (5.2)%
================================================================================
</TABLE>
Employee costs consist of salaries, wages, and other employee compensation,
employee benefits and payroll taxes.
Employee costs at the network services subsidiaries decreased in the third
quarter of 1995 by $170.2 million or 15.5% and year-to-date by $186.5 million or
6.4%, compared with the same periods in 1994. Employee costs at the Company's
nonregulated subsidiaries increased by $5.6 million or 5.5% in the third quarter
of 1995 and $20.3 million or 6.6% year-to-date over the corresponding periods in
1994.
The third quarter and year-to-date decreases in employee costs at the network
services subsidiaries were principally due to the effect of a third quarter 1994
charge of $161.9 million to recognize benefit costs for the separation of
employees who are entitled to benefits under preexisting separation pay plans.
Decreased overtime pay and lower workforce levels at the network services
companies in 1995 further reduced employee costs in both periods. These cost
reductions were partially offset by annual salary and wage increases and the
recognition of certain contract labor and separation pay costs in the second and
third quarters of 1995 associated with a new five-year labor contract with the
International Brotherhood of Electrical Workers (IBEW).
In June 1995, the Company's network services subsidiaries ratified a contract
with the IBEW, representing approximately 9,500 employees. The IBEW contract,
which was effective May 21, 1995, provided for a 14.5% wage increase over the
five-year contract period; a ratification bonus; improved benefits and pensions;
and certain employment security provisions.
The Bell Atlantic operating telephone companies' contract with the
Communications Workers of America (CWA) expired on August 5, 1995. As of
November 6, 1995, the Company and the CWA have not reached a settlement on a new
contract and the Company continues to make work available to employees
represented by the CWA at the same wages and benefits as under the expired
contract until further notice.
Higher employee costs at the nonregulated subsidiaries in both the three and
nine month periods were principally attributable to an increased workforce at
the computer maintenance and systems integration companies due to growth at
these business units. Year-to-date expense increases were offset, in part, by
the effect of the aforementioned disposition of certain non-strategic businesses
during 1994.
15
<PAGE>
Depreciation and Amortization
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $2.5 .4%
- --------------------------------------------------------------------------------
Nine Months $40.4 2.2%
================================================================================
</TABLE>
Depreciation and amortization expense at the network services subsidiaries for
the third quarter and year-to-date 1995 increased $10.8 million or 1.8% and
$81.0 million or 4.6%, respectively, compared with the same periods in 1994,
principally due to growth in depreciable telephone plant. The network services
subsidiaries' composite depreciation rate was 7.9% for the nine month period
ended September 30, 1995. The Company expects the composite depreciation rate to
remain substantially unchanged for the remainder of 1995.
Depreciation and amortization expense at the nonregulated subsidiaries
decreased by $8.3 million or 29.2% and $40.6 million or 40.1%, over the
corresponding third quarter and nine months of the prior year. The decrease was
due primarily to the effect of the sale of substantially all of the assets of
the Company's lease financing business during 1994.
Other Operating Expenses
<TABLE>
<CAPTION>
Dollars in Millions Increase (Decrease)
================================================================================
<S> <C> <C>
Third Quarter $53.8 6.6%
- --------------------------------------------------------------------------------
Nine Months $(33.1) (1.3)%
================================================================================
</TABLE>
Other operating expenses consist primarily of contract services, rent, network
software costs, the provision for uncollectible accounts receivable and other
costs.
The year-to-date reduction in other operating expenses was largely due to the
effect of the aforementioned disposition of several non-strategic businesses
during 1994, as well as lower expenses at the network services subsidiaries
attributable to the timing of telephone network software purchases. Other
operating expenses in the third quarter of 1995 were also impacted, but to a
lesser extent, by these cost reductions.
The cost reductions were more than offset in the third quarter of 1995 and
partially offset year-to-date by nonrecurring charges of $48.2 million
associated with certain business development ventures and contracts. The
Company also incurred increased costs at its systems integration subsidiaries
due to higher business volumes, and additional costs were incurred by the
network services subsidiaries to enhance systems, consolidate work activities
and market value-added services.
Due to the disposition of the Company's domestic computer maintenance
subsidiary in October 1995, future periods will no longer include operating
expenses from this business. Operating expenses related to this business were
approximately $363 million and $334 million for the nine month periods ended
September 30, 1995 and 1994, respectively.
16
<PAGE>
Equity in Income of Affiliates
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C> <C>
Third Quarter $13.1 21.3%
- --------------------------------------------------------------------------------
Nine Months $32.5 22.9%
================================================================================
</TABLE>
Equity in income of affiliates includes equity income and losses and goodwill
amortization related to the Company's investments in unconsolidated businesses.
For comparative purposes, the domestic cellular and paging businesses for
periods prior to July 1, 1995 are presented as though accounted for under the
equity method.
Equity in income from the Company's investment in Bell Atlantic NYNEX Mobile
(BANM) for the third quarter of 1995 was $69.7 million, compared to $45.4
million for the same period last year and $176.2 million year-to-date 1995,
compared to $107.1 million year-to-date 1994. The increase in both periods was
driven by strong revenue growth due to a 47% increase in BANM's cellular
subscriber base. Revenue growth was negatively impacted by increased penetration
of the lower-usage consumer market, resulting in a decline of approximately 15%
in average monthly revenue per subscriber. Third quarter and year-to-date 1995
equity in income of affiliates was further boosted by improved operating results
from the Company's investment in Telecom Corporation of New Zealand Limited
(Telecom).
Higher equity income from the Company's investments in BANM and Telecom was
partially offset in both periods by the effects of goodwill amortization and
equity losses associated with the Company's investment in Grupo Iusacell, S. A.
de C.V. (Iusacell) and equity losses associated with the Company's video
services joint ventures.
The third quarter and year-to-date 1995 equity losses associated with Iusacell
were $14.1 million and $51.5 million, respectively, compared to equity losses of
$6.0 million and $25.5 million for the same periods in 1994. The equity losses
in Iusacell in 1995 were impacted by an increase in the Company's economic
interest from 23.2% to 41.9% in August of 1994 and by the effect of the
devaluation of the Mexican peso on Iusacell's net liabilities, primarily debt,
denominated in U.S. dollars. The Company's equity in income of Iusacell will
continue to be impacted by changes in the peso exchange rate.
Other Income (Expense), Net
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C>
Third Quarter $333.0
- --------------------------------------------------------------------------------
Nine Months $303.9
================================================================================
</TABLE>
Other income (expense), net, consists primarily of interest and dividend
income, and gains and losses from the disposition of subsidiaries and non-
operating assets and investments.
The increase in other income (expense) net, for both the three and nine month
periods ended September 30, 1995 is principally attributable to the recognition,
in the third quarter of 1995, of a pretax gain of approximately $318 million on
the sale of certain cellular properties in connection with the formation of the
BANM partnership (see Note 3 to the Condensed Consolidated Financial
Statements).
Interest Expense
<TABLE>
<CAPTION>
Dollars in Millions (Decrease)
================================================================================
<S> <C> <C>
Third Quarter $(17.0) (11.3)%
- --------------------------------------------------------------------------------
Nine Months $(21.2) (5.0)%
================================================================================
</TABLE>
Interest expense decreased for both periods of 1995 due to the recognition of
capitalized interest costs at the telephone subsidiaries. Upon the discontinued
application of regulatory accounting principles, effective August 1, 1994, the
Company began recognizing capitalized interest costs as a reduction of interest
expense. Previously, the Company recorded an allowance for funds used during
construction as an item of other income. The third quarter and year-to-date
decreases were also impacted by the effect of additional interest expense
recorded in 1994 related to debt instruments retained by the Company in
connection with the disposition of the Company's lease financing subsidiary.
These expense decreases were partially offset by the effect of rising interest
rates during 1995.
17
<PAGE>
Provision for Income Taxes
<TABLE>
<CAPTION>
Dollars in Millions Increase
================================================================================
<S> <C>
Third Quarter $208.1
- --------------------------------------------------------------------------------
Nine Months $239.3
================================================================================
</TABLE>
Effective Income Tax Rates
<TABLE>
<CAPTION>
For the Three Months Ended September 30
================================================================================
<S> <C>
1995 38.1%
- --------------------------------------------------------------------------------
1994 37.3%
================================================================================
<CAPTION>
For the Nine Months Ended September 30
================================================================================
<S> <C>
1995 38.6%
- --------------------------------------------------------------------------------
1994 38.6%
================================================================================
</TABLE>
The higher effective income tax rate in the third quarter of 1995 was
principally due to certain foreign operations which reduced consolidated pretax
income without providing corresponding tax benefits. This increase was
substantially offset by the effect of a third quarter 1995 adjustment to
deferred state income taxes for a decrease in the Pennsylvania state income tax
rate.
The year-to-date 1995 effective income tax rate was unchanged, as compared to
the same period last year due to a combination of items. In addition to the
items affecting the third quarter of 1995, year-to-date 1995 also included the
effects of the reduction in the amortization of investment tax credits and the
elimination of the benefit of the income tax rate differential applied to
reversing timing differences at the telephone subsidiaries, both as a result of
the discontinued application of regulatory accounting principles in August 1994.
These items were essentially offset by the effect of recording, in the second
quarter of 1994, an adjustment to the provision for deferred state income taxes
on the Company's remaining leveraged lease portfolio.
- ----------------------------------------
Competitive and Regulatory Environment
- ----------------------------------------
The communications industry continues to undergo fundamental changes which may
have a significant impact on future financial performance of telecommunications
companies. These changes are being driven by a number of factors, including the
accelerated pace of technological innovation, the convergence of the
telecommunications, cable television, information services and entertainment
businesses, and a regulatory environment in which traditional barriers to entry
are being lowered or eliminated and competition permitted or encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company. The entry of
well-financed competitors has the potential to adversely affect multiple revenue
streams of the telephone subsidiaries, including toll, local exchange and
network access services in the markets and geographical areas in which the
competitors operate. The amount of revenue reductions will depend, in part, on
the competitors' success in marketing these services and the conditions
established by regulatory authorities. The potential impact is expected to be
offset, to some extent, by revenues from interconnection charges to be paid to
the telephone subsidiaries by these competitors. See "State Regulation" for a
discussion of the impact of competition on toll service revenues.
The Company continues to respond to competitive challenges by focusing on
meeting customer requirements and cost controls through efficiency and
productivity initiatives. In addition, the Company continues to seek growth
opportunities in businesses where it possesses core competencies. Several
examples of the Company's recent initiatives to address competition are
described below.
18
<PAGE>
To expand its geographic presence in the wireless business, the Company
combined substantially all of its domestic cellular and paging operations with
those of NYNEX Corporation, effective July 1, 1995, and formed a partnership,
Bell Atlantic NYNEX Mobile, that owns and operates such businesses.
Bell Atlantic and NYNEX in 1994 also formed two partnerships with U S WEST,
Inc. and AirTouch Communications to provide nationwide wireless communications
services. The first partnership (PCS PrimeCo) participated in the FCC's auctions
for personal communications services (PCS) licenses. In March 1995, PCS PrimeCo
was a successful bidder for licenses for spectrum to provide PCS services in 11
major markets across the United States. The partnership paid approximately $1.1
billion for these licenses. The second partnership will develop a national
branding and marketing strategy and wireless communications services standards.
To expedite its entry into the video services market, Bell Atlantic formed two
new partnerships with NYNEX and Pacific Telesis Group. TELE-TV Media, L.P. will
license, acquire, and develop entertainment and information services. TELE-TV
Systems, L.P. will provide the systems necessary to deliver these services over
the partners' networks. Over the 1995 to 1997 period, each of the partners will
contribute approximately $100 million in cash or assets to the new joint
ventures.
During 1995, Bell Atlantic and NYNEX each invested $50 million in CAI Wireless
Systems Inc., a wireless cable television company, which in turn has entered
into several agreements to acquire the stock or assets of other wireless cable
television companies. In exchange for this investment, Bell Atlantic holds $15
million of subordinated debt bearing 14% interest maturing in the year 2005 and
received $35 million of redeemable convertible nonvoting preferred stock
carrying a dividend rate of 14%. Also as part of this transaction, Bell Atlantic
and NYNEX received the right to acquire up to a total of 45% ownership interest
in CAI Wireless through the exercise of warrants. Bell Atlantic and NYNEX have
also entered into an agreement with CAI Wireless which gives each of them the
right (but not the obligation) to use, for specified charges, the distribution
systems of CAI Wireless to begin offering digital video programming to
customers.
Federal Regulation
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that would open the telephone subsidiaries' local exchange
markets to competitors and would permit local exchange carriers, such as the
Company, to provide video programming, as well as to provide interLATA services
and engage in manufacturing upon meeting certain conditions. The Senate passed a
similar bill in June of 1995. The Company is cautiously optimistic that a
conference committee will reconcile the two bills, and Congress will pass
comprehensive telecommunications legislation by the end of 1995. However, no
definitive prediction can be made as to whether or when such legislation will be
enacted, the provisions thereof, or the impact on the business or financial
condition of the Company.
On April 28, 1995, the U.S. District Court, which administers the Modification
of Final Judgment (MFJ), granted the Regional Bell Operating Companies' (RBOCs)
joint motion for a waiver of the MFJ permitting them to provide interLATA
wireless telecommunications services. The Court's decision contained a number of
restrictions limiting the extent and manner in which the RBOCs may provide
interLATA wireless services. While the Company plans to comply with the
requirements of the Court's decision so that it may provide the services
authorized therein, it has appealed the decision to the U.S. Court of Appeals
for the District of Columbia Circuit.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of the network services
companies' 1988 and first quarter 1989 reported adjustments to the National
Exchange Carrier Association (NECA) interstate common line pool. On May 2, 1995,
the Company filed its response to the Show Cause Order, asserting that there is
no legal basis for the FCC to institute enforcement proceedings with respect to
these findings. The FCC solicited comments on the Company's filing, and only one
party filed comments challenging the Company's response. On September 11, 1995,
the Company filed a reply to these comments, reasserting its position that no
proceedings are warranted. Resolution of this matter is expected late in 1995.
19
<PAGE>
FCC Interim Price Cap Order
On March 30, 1995, the FCC adopted its Report and Order approving an Interim
Price Cap Plan for interstate access charges. The Interim Plan, which was
effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted in
1990.
Under the Interim Plan, the Company's Price Cap Index must be adjusted by an
inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7% or 5.3%,
which is intended to reflect increases in productivity ("Productivity Factor").
Companies selecting the 4.0% or 4.7% Productivity Factor are required to reduce
future prices and share a portion of their interstate return in excess of
12.25%. Companies selecting the 5.3% Productivity Factor are also required to
reduce prices but are not required to share a portion of their future interstate
earnings. The Interim Plan also provides for a reduction in the Price Cap Index
of 2.8% to adjust for what the FCC believes was an underestimate in its
calculation of the Productivity Factor in prior years. The Interim Plan also
eliminates the recovery of certain "exogenous" cost changes, including changes
in accounting costs that the FCC believes have no economic consequences.
On May 9, 1995, the Company filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Order. In the filing, the Company selected the
5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The
rates included in the May 9, 1995 filing resulted in price decreases totaling
approximately $305 million on an annual basis. These price decreases include
the scheduled expiration of a temporary rate increase of approximately $98
million on an annualized basis that was in effect from March 17, 1995 through
July 31, 1995 to recover prior years "exogenous" postemployment benefit costs.
Approximately 80% of the remaining $207 million reduction results from
compliance with the Interim Plan. The remaining 20% represents reductions that
the Company was required to make under the prior Price Cap Plan. It is expected
that these price decreases will be partially offset by volume increases.
Bell Atlantic appealed the Interim Price Cap Order to the Court of Appeals for
the D.C. Circuit, and that case is currently pending.
State Regulation
The ability of IXCs to offer intrastate intraLATA toll services is subject to
state regulation. Such competition is currently permitted in all of the
Company's state jurisdictions that provide intraLATA toll services. The Virginia
State Corporation Commission, issued an order permitting intraLATA toll
competition in Virginia, beginning October 1, 1995. Increased competition from
IXCs has resulted in a decline in several components of the telephone
subsidiaries' toll service revenues.
Presubscription for intraLATA toll services is also subject to state
regulation. Currently, intraLATA toll calls are completed by the network
services companies unless the customer dials a five-digit access code to use an
alternate carrier. Presubscription would enable customers to make intraLATA
toll calls using the carrier of their choice without having to dial the five-
digit access code. On October 10, 1995, the West Virginia Public Service
Commission (WVPSC) issued an order directing the implementation of intraLATA
equal access within eighteen months of the WVPSC's order. The Company filed a
petition on October 20, 1995 requesting the WVPSC to vacate its order and defer
making any decisions on intraLATA presubscription until such time as the Company
is permitted to participate in the interLATA long-distance market, or,
alternatively, until such time as it can be determined whether the
telecommunications reform legislation will be enacted and signed into law.
State regulatory commissions in Pennsylvania, New Jersey, and Delaware have
initiated proceedings to determine whether, and under what conditions, to
authorize presubscription for intraLATA toll services. The telephone
subsidiaries' ability to offset the impact of presubscription, if ordered, will
depend, in part, upon the terms and conditions under which presubscription for
intraLATA toll services may be authorized, as well as the telephone
subsidiaries' ability to offer interLATA services. Implementation of
presubscription for intraLATA toll services without the ability to offer
interLATA services could have a material negative impact on toll service
revenues.
20
<PAGE>
- ---------------
Other Matters
- ---------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result of
the operations of its subsidiaries and the shared liability provisions in the
Plan of Reorganization related to the MFJ. Certain of these environmental
matters relate to Superfund sites for which the Company's subsidiaries have been
designated as potentially responsible parties by the U.S. Environmental
Protection Agency or joined as third-party defendants in pending Superfund
litigation. Such designation or joinder subjects the named company to potential
liability for costs relating to cleanup of the affected sites. The Company is
also responsible for the remediation of sites with underground fuel storage
tanks and other expenses associated with environmental compliance.
The Company continually monitors its operations with respect to potential
environmental issues, including changes in legally mandated standards and
remediation technologies. The Company's recorded liabilities reflect those
specific issues where remediation activities are currently deemed to be probable
and where the cost of remediation is estimable. Management believes that the
aggregate amount of any additional potential liability would not have a material
effect on the Company's results of operations or financial condition.
Subsequent Event - Sale of Business
In October 1995, the Company sold its domestic computer maintenance
subsidiary, Bell Atlantic Business Systems Services, Inc., and its interests in
certain European computer maintenance operations for approximately $250 million
in cash (subject to post-closing adjustments). The Company expects to record a
small gain as a result of this disposition. This disposition is not expected to
have a material impact on the Company's future net income.
21
<PAGE>
- ---------------------
Financial Condition
- ---------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From (Used In):
Operating Activities $2,916.2 $2,542.3
Investing Activities (1,952.5) (966.1)
Financing Activities (1,008.9) (1,496.2)
================================
</TABLE>
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization and the payment of dividends. Management expects
that presently foreseeable capital requirements will be financed primarily
through internally generated funds. Additional long-term debt and equity
financing may be needed to fund additional development activities and to
maintain the Company's capital structure within management's guidelines. The
Company determines the appropriateness of the level of its dividend payments on
a periodic basis by considering such factors as long-term growth opportunities,
internal requirements of the Company, and the expectations of shareowners.
The use of derivatives by the Company is limited to managing risk that could
endanger the financing and operating flexibility of the Company, making cash
flows more stable over the long run, and achieving savings over traditional
means of financing. Derivative agreements are tied to a specific liability or
asset and hedge the related economic exposures. The use of these hedging
agreements has not had a material impact on the Company's financial condition or
results of operations. The Company does not use derivatives for speculative
purposes and has not hedged its accounting translation exposure to foreign
currency fluctuations relative to its net investment position in foreign
affiliates.
Cash Flows From Operating Activities
The Company's primary source of funds continued to be cash generated from
operations. Improved cash flows from operating activities during the first nine
months of 1995 resulted principally from strong operating income growth.
Cash Flows Used in Investing Activities
Capital expenditures continued to be the primary use of capital resources in
1995. During the nine month period ended September 30, 1995, the Company
invested $1,905.2 million in its telecommunications core business to facilitate
the introduction of new products and services, enhance responsiveness to
competitive challenges and increase the operating efficiency and productivity of
the network.
During the first nine months of 1995, the Company invested $352.2 million in
joint ventures including a $271.6 million investment in PCS PrimeCo, primarily
to fund the purchase of PCS licenses and $80.6 million invested in other
domestic and international joint ventures.
In connection with the July 1, 1995 formation of the BANM partnership, the
Company received cash proceeds of $362.5 million from the sale of certain
conflicted cellular properties.
During the first quarter of 1995, the Company prefunded a trust with the
purchase of $135.0 million in short-term investments for the purpose of
compensating employees for vacation pay earned during 1994. Cash proceeds from
the sale of these short-term investments amounted to $93.1 million at the end of
September 1995.
Cash proceeds from investing activities in the first nine months of 1995 also
included approximately $151 million received in connection with a note
receivable resulting from the sale of substantially all of the Company's lease
financing business in 1994 and $87.0 million received in connection with a note
receivable established with the formation of the BANM partnership.
22
<PAGE>
In October 1995, the Company received cash proceeds of approximately $250
million (subject to post-closing adjustments) from the disposition of its
domestic computer maintenance subsidiary and its interests in certain European
computer maintenance operations (see Note 5 to the Condensed Consolidated
Financial Statements).
Cash Flows Used in Financing Activities
Dividend payments in the first nine months of 1995, as in prior years, were a
significant use of capital resources. During 1995, the Company decreased its
long-term debt by $158.2 million and increased its short-term borrowings by
$82.7 million. Higher short-term borrowings were principally as a result of
increased expenditures at the network services companies and the financing of
investments in joint ventures.
As of September 30, 1995, the Company and its subsidiaries had in excess of
$2.1 billion of unused bank lines of credit. The Company and its telephone
subsidiaries also have shelf registrations for the issuance of up to $1.9
billion of unsecured debt securities.
The Company's debt ratio was 57.1% at September 30, 1995 and 59.4% at December
31, 1994. The debt securities of Bell Atlantic's subsidiaries continue to be
accorded high ratings by primary rating agencies.
As a result of the formation of the BANM partnership, the Consolidated Balance
Sheet at September 30, 1995 reflects significant changes due to the contribution
of assets and liabilities to the partnership (see Note 3 to the Condensed
Consolidated Financial Statements).
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, including pending antitrust
cases, see Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit Number
11 Computation of Per Common Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended September 30,
1995:
A Current Report on Form 8-K, dated July 20, 1995, was filed regarding
the Company's second quarter 1995 financial results.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELL ATLANTIC CORPORATION
Date: November 9, 1995 By /s/ William O. Albertini
------------------------
William O. Albertini
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
25
<PAGE>
Exhibit 11
1 of 2
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Per Common Share Earnings
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Income before extraordinary item............. $ 604.8 $ 275.7
Extraordinary item........................... -- (2,150.0)
------------ ------------
Net income (loss)............................ $ 604.8 $ (1,874.3)
============ ============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding.......... 436,752,818 436,286,739
Incremental shares from assumed exercise of
stock options and payment of performance
share awards............................... 1,737,633 1,016,494
------------ ------------
Total shares................................. 438,490,451 437,303,233
============ ============
Income before extraordinary
item....................................... $ 1.38 $ .63
Extraordinary item........................... -- (4.92)
------------ ------------
Net income (loss)............................ $ 1.38 $ (4.29)
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding.......... 436,752,818 436,286,739
Incremental shares from assumed exercise of
stock options and payment of performance
share awards............................... 2,154,589 1,016,494
------------ ------------
Total shares................................. 438,907,407 437,303,233
============ ============
Income before extraordinary item............. $ 1.38 $ .63
Extraordinary item........................... -- (4.92)
------------ ------------
Net income (loss)............................ $ 1.38 $ (4.29)
============ ============
</TABLE>
* Fully diluted earnings per share calculation is presented in accordance with
Regulation S-K item 601(b)(11) although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because it
results in dilution of less than 3%.
<PAGE>
Exhibit 11
2 of 2
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Per Common Share Earnings
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Income before extraordinary items............ $ 1,466.4 $ 1,087.0
Extraordinary items.......................... -- (2,156.7)
------------ ------------
Net income (loss)............................ $ 1,466.4 $ (1,069.7)
============ ============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding.......... 436,549,985 436,277,798
Incremental shares from assumed exercise of
stock options and payment of performance
share awards............................... 1,318,864 984,909
------------ ------------
Total shares................................. 437,868,849 437,262,707
============ ============
Income before extraordinary items............ $ 3.35 $ 2.49
Extraordinary items.......................... -- (4.94)
------------ ------------
Net income (loss)............................ $ 3.35 $ (2.45)
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding.......... 436,549,985 436,277,798
Incremental shares from assumed exercise of
stock options and payment of performance
share awards............................... 1,517,211 1,057,664
------------ ------------
Total shares................................. 438,067,196 437,335,462
============ ============
Income before extraordinary items............ $ 3.35 $ 2.49
Extraordinary items.......................... -- (4.94)
------------ ------------
Net income (loss)............................ $ 3.35 $ (2.45)
============ ============
</TABLE>
* Fully diluted earnings per share calculation is presented in accordance with
Regulation S-K item 601(b)(11) although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because it
results in dilution of less than 3%.
<PAGE>
Exhibit 12
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine months ended
September 30, 1995
------------------
<S> <C>
Income before provision for income taxes................... $ 2,387.7
Equity in income of less than majority-owned subsidiaries.. (90.3)
Dividends from less than majority-owned subsidiaries....... 81.3
Interest expense, including interest on capital lease
obligations............................................... 433.1
Portion of rent expense representative of the interest
factor.................................................... 69.5
----------
Income, as adjusted........................................ $ 2,881.3
==========
Fixed charges:
Interest expense, including interest on capital lease
obligations............................................... $ 433.1
Portion of rent expense representative of the interest
factor.................................................... 69.5
Capitalized interest....................................... 46.9
Preferred stock dividend requirement....................... 7.3
----------
Fixed charges.............................................. $ 556.8
==========
Ratio of Earnings to Fixed Charges......................... 5.17
==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 98
<SECURITIES> 42
<RECEIVABLES> 2,484
<ALLOWANCES> 170
<INVENTORY> 282
<CURRENT-ASSETS> 3,884
<PP&E> 33,509
<DEPRECIATION> 17,439
<TOTAL-ASSETS> 24,546
<CURRENT-LIABILITIES> 5,283
<BONDS> 6,648
<COMMON> 437
0
0
<OTHER-SE> 6,192
<TOTAL-LIABILITY-AND-EQUITY> 24,546
<SALES> 0
<TOTAL-REVENUES> 10,275
<CGS> 0
<TOTAL-COSTS> 7,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 2,388
<INCOME-TAX> 921
<INCOME-CONTINUING> 1,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,466
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 0
</TABLE>
